Why Cheap, Shitty Beer is So Cheap and Shitty in Chicago



Chicago Tribune, composite photo, 1906
  • Commission on Chicago Landmarks
  • Chicago Tribune, composite photo, 1906

Crain's has an excellent look inside the strange business of beer distribution and its effect on what beers are sold where at what prices. But it doesn't really explain why the business is legally mandated to exist. For that, I recommend Nicholas Day's 2006 Reader cover story on a conflict between Bell's and its distributor, which briefly drove the brewer out of the Illinois market:

To understand what happened to Bell's, you have to understand what happened in the 1930s, after Prohibition, when modern alcohol law and the three-tier system were created. The system, which stipulates that all alcohol has to pass through a middleman, was established to ensure that producers couldn't run bars and limit consumer choice by exclusively serving their own drinks, a situation known as a "tied house." The repeal of Prohibition effectively gave states the right to regulate alcohol within their borders, and the resulting patchwork of laws has meant that distributors are usually in-state companies.

If you aren't clear on the concept of a "tied house," you may have noticed all the buildings in the city sporting Schlitz iconography and semi-distinctive architectural styles. A lengthy, excellent history of tied houses (PDF) from the city's Commission on Historic Landmarks explains how the tied house, an English invention, came to be the scourge of Chicago beer drinkers: aggressive temperance laws forced tavern owners to appeal to brewers in order to keep up with expensive, difficult-to-obtain licenses:

A second pillar of “dry” reformers focused on the licensing of drinking establishments, specifically restricting the number of licenses to discourage the establishment of new licenses. Dry’s also advocated a “high license” movement which would increase the annual saloon license fee to raise revenue for police and social programs necessitated by alcohol abuse. The higher fees were also hoped to force small tavern owners out of business. In 1883 the Illinois State legislature passed the Harper High License Act which raised the annual saloon license fee from $103 to $500.

Facing bankruptcy, saloon keepers turned to brewers for help in paying the higher license fees. To keep their retailers in business and selling their beer, brewers subsidized saloon owners by paying part or all of the increased license fees. In exchange, brewers compelled the saloon keeper to exclusively sell only their beer. After passage of the Harper legislation, 780 of Chicago’s 3,500 saloons closed, yet in the next year 516 new saloons opened with subsidies from brewing companies.

These efforts by temperance advocates to regulate public drinking establishments had the unintended effect of increasing the role of breweries in the retailing of their product, which led ultimately to brewers taking direct control over saloons in the tied-house system.

The eventual consequence of this was to force brewers to build or subsidize tied houses in order to compete; by tying competition not just to beer brewing but tavern building, the result was to inspire lots and lots of tavern building—note the rather extraordinary stretch of Ashland in the picture above—in other words the opposite of what temperance advocates intended. It also discouraged competition among brewers by giving a competitive advantage to larger brewers, which had the capital to compete in a tied-house market.

So the three-tier system—producer, wholesaler, and retailer—was designed to foster competition by breaking the tied-house system. But as the Crain's and Reader pieces show, distributors have gained considerable control over Chicago taps by mimicking the practices of brewers during the tied-house days, subsidizing various costs of business in exchange for market share. The result is big-brewer-dominated distribution companies that wield power in ways not unlike the tied-house brewers once did:

Mass-market brands don't actually own their distribution networks—that'd be a violation of the three-tier system—but they can effectively control them. Even in a declining market, there's a lot of money to be made in distributing the best-known beer brands, and wholesalers want to keep their biggest clients happy. The identification is so complete that if a distributor handles Miller or Anheuser-Busch, people in the industry almost always refer to the company—even if it carries multiple unaffiliated brands—as the "Miller distributor" or the "A-B distributor."

As Day notes, the number of distributors in America has shrunk considerably in the past three decades, while the number of breweries has soared in the wake of craft beer and brewpub deregulation, though we're still far from the number of breweries that existed in the late 19th century.

This has resulted in something of a bottleneck: more beers and fewer businesses to distribute them, or if you prefer, more competition versus more risk of anticompetitive practices. So the pushback is getting stronger, and not just in the form of lengthy investigative pieces about how you get your beer, but also in—naturally—lawsuits.

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